New York City — The rising price of energy is strangling the operating budget of the New York City Housing Authority (NYCHA). Experts project that the biggest housing authority in the nation will overspend its $1.7 billion operating budget by $168 million in fiscal 2006.
Budget shortfalls are nothing new for NYCHA. The federal government has been giving NYCHA less money than the authority needs for years, according to agency officials. So far, NYCHA has made up the difference by spending more than $357 million of its own reserves since 2001.
But this year, for the first time, the authority no longer has enough reserves to cover the shortfall. It’s busy looking for possible solutions.
New York City is hardly alone: Housing authorities nationwide are feeling the pinch. Although the amount of operating subsidies the Department of Housing and Urban Development (HUD) gives to these authorities has risen in recent years, it hasn’t climbed nearly as quickly as the cost of operating public housing.
Five years ago HUD’s operating subsidies, meant to make up for the income housing authorities lose when they slice rents for very low income tenants, just about covered the agencies’ expenses. But in recent years HUD’s allocations have fallen short of the authorities’ needs – and the situation is only getting worse, according to the National Association of Housing and Redevelopment Officials (NAHRO).
In 2001, HUD paid housing authorities $3.1 billion in operating subsidies – just about what they spent. But in fiscal 2006, HUD’s subsidies will fall $300 million short of the $3.9 billion agencies need, NAHRO said. And housing authorities will require $4.4 billion to operate their properties in fiscal 2007, according to HUD’s own formula. But the White House has proposed giving housing authorities just $3.6 billion.
“For every dollar they need, they are only getting 80 cents,” said Saul Ramirez, NAHRO executive director.
Rising energy costs shock authorities
Heating costs are responsible for a large part of the budget gaps in New York City and across the country. The average price of residential heating oil rose almost 20% in 2005, and the average price of residential natural gas rose more than 43%, according to the Energy Information Administration.
Other costs have also grown. For example, NYCHA’s contributions to its pension plan soared nearly tenfold between 2001 and 2005, to $62.6 million from just $6.5 million.
But those costs are small change compared to NYCHA’s energy bills, which grew from more than $250 million a year in 2002 to slightly less than $450 million in 2005. Officials project energy costs will exceed $500 million for 2006.
The agency’s revenues are not keeping up. NYCHA gets half of its operating income from a subsidy provided by HUD. Rental payments by its tenants supply about 43%.
Unfortunately, HUD’s formula for computing energy expenses is based on prior year average costs plus an inflation adjuster. It makes no allowance for steep price increases, which have already forced agencies to pay $263 million in un-reimbursed energy costs between 2002 and 2005, according to NYCHA.
To make things more complicated, HUD has created a new formula to distribute operating subsidy among the nation’s 900 local housing authorities. According to the formula, which becomes effective Jan. 1, 2007, as many as two-thirds of these authorities will receive larger operating subsidies than they received in 2006. But that leaves at least one-third of the authorities getting less.
But the formula is not so exact in predicting the subsidy needs of smaller housing authorities and many will lose subsidy, according to NAHRO. NYCHA also argues that the formula has failed to predict the needs of large housing authorities, like themselves. New York City’s high cost of living, the age of its public housing and the cost of centralized warehouses should all be taken into account, according to NYCHA.
However, authorities slated for subsidy cuts can keep their funding subsidies at 2006 levels if they comply with HUD’s new project-based accounting rule for fiscal 2007, the department said.
NYCHA is now negotiating with HUD about how to apply the new accounting rule. If the authority fails to meet HUD’s standards, NYCHA may lose more than $100 million in operating subsidy in addition to its existing $168 million shortfall.
NYCHA cuts costs, raises revenues
In the struggle to make ends meet, NYCHA has already trimmed its yearly budget by more than $100 million since 2001. For example, the agency saved $33.8 million by reducing its staff from 14,671 to 13,526. Reduced maintenance and operations contracts saved $25 million. Cutting back on overtime saved another $24 million.
NYCHA also received a great deal of media attention recently for raising the fees it charges its 417,000 public housing residents, ranging from replacement fees for broken fixtures to utility charges for running large appliances.
Most of these charges aren’t new. But the fees had not been raised in more than a decade.
Charging $75 a year in rent for parking spaces in Manhattan will hardly solve the authority’s budget problems. The fees are expected to raise about $1.5 million. That’s less than 1% of the shortfall.
“We’re not going to make a lot of money,” said NYCHA spokesman Howard Marder. The authority continues to look for other ways to raise or save money, but it hasn’t yet come up with a solution.